As an active Stocks and Shares ISA investor, I’m hoping for more of the same in November.

Bargain hunt

Like legendary investor Warren Buffett, I like to buy shares based on value. I also, like the Berkshire Hathaway boss, look to hold onto them for the long haul. As a result, I use market volatility like we’ve seen as a chance to go bargain-hunting.

Investing in stocks is riskier than, say, putting my spare cash in something like a cash account. The near-term risks are particularly acute today given the mix of soaring inflation and central bank rate increases, and their double-whammy impact on the global economy.

But buying shares to hold for the long haul reduces the risk by ironing out temporary volatility. So even though share markets could remain choppy in November, I’m still aiming to build my Stocks & Shares ISA.

After all, I’m not going to make any money by sitting on the sidelines and waiting for any volatility to pass. As market analyst Sam North of eToro comments: “Remember, time in the markets beats timing the markets. And on the whole, they go up more than they go down.”

A FTSE 100 stock on my radar

This is why I’m planning to buy HSBC Holdings (LSE: HSBA) shares for my Stocks & Shares ISA next month. I think it could help me to hit (or even exceed) that average annual return of 8% that long-term investors tend to make.

The HSBC share price has continued sinking in late October. Not even the release of forecast-beating financials have arrested the slide (it recorded pre-tax profits of $3.1bn between July and September).

The market has been spooked by the $1.1bn worth of loan impairments HSBC booked in the third quarter. HSBC attributed these charges to “increased economic uncertainty, inflation, rising interest rates and the ongoing developments in mainland China’s commercial real estate sector”. And these troubles look set to persist heading into 2023.

8.8% dividend yield

However, it’s my opinion that HSBC’s share price today reflects these worries. For 2022, it trades on a price-to-earnings (P/E) ratio of 6.5 times. And the multiple slides to an even lower 5.3 times for next year.

I expect the company’s shares to rebound strongly over the long term. Financial product penetration in the bank’s core Asian markets has soared in recent years yet remains low. And personal wealth levels are tipped to continue growing strongly in coming decades, likely driving banking services demand still higher.

HSBC is investing billions over the next five years in areas like wealth management to make the most of this opportunity too. What’s more, further asset sales outside Asia could be coming to boost its growth programme on the continent.

I think now’s a great time to pick HSBC up on the cheap. And the bank’s huge dividend yields of 5.8% and 8.8% for 2022 and 2023 add a considerable bonus.

With centuries of experience, these banks have been crucial in developing the British economy as you know it today. They have funded businesses throughout the country and have helped elevate the economy. 

As a result, the top UK banking shares today offer strong dividends and steady growth. And over the years they have become the pillars of the investment community in the country.

We’ll break down what beginner investors need to know to explore and invest in the thriving UK finance sector, by looking at the top five banking shares in terms of market share. 

What are bank shares?

Bank shares are publicly listed companies that provide a broad range of financial services to the public and businesses alike. 

Common operations include maintaining accounts and providing loans, mortgages, and asset management services. Banking groups also provide secure transactional pathways that enable account holders to pay and receive money via instruments like credit cards, debit cards, and digital transfers.

Top UK banking shares

Here are some of the top UK banking shares in order of highest market cap.

1.  HSBC Holdings 

The European banking giant, established in Hong Kong in 1865, has grown to become a huge force in the field. Currently, HSBC Holdings (LSE:HSBA) has the highest total assets of all major European banks, worth over $15trn. And the banking firm now has a new area of focus and a new strategy that looks exciting on paper. 

In the midst of the pandemic in 2021, HSBC announced that it was switching focus to the growing Asian markets while slowly withdrawing from Britain and the US. This led to the banker cutting over 35,000 jobs and acquiring smaller banking groups in countries like Singapore and India, further cementing its Asia-first strategy. 

And the move as already proven to be a successful switch for the banker. In July 2022, HSBC announced that it had become the first foreign lender to open a Communist Party of China committee in its Chinese investment banking subsidiary. While this move has been criticised by regulators in the UK, investors see this as a strong move that could open up a vast, economically affluent market.

As of July 2022, HSBC shares have regularly outperformed the FTSE 100 index. While this is not an indicator of future returns, 2022 has been a very turbulent economic period. This banking share’s ability to navigate choppy waters is impressive.

2.  Banco Santander SA

Banco Santander (LSE:BNC) or Santander Bank as it is known in the UK, is the 16th largest multinational bank in the world. It is one of the biggest bankers listed in the LSE today and has a huge presence in South America. It is also expanding slowly into the emerging Asian market as well. 

Santander’s priority over the last few years has been customer acquisition. Its campaign has proven successful, adding 32m new customers since 2015 and taking its total customer base to 153m. During this growth, the business has been maintaining a steady operating income that hasn’t dipped below €20bn since 2008.

And profits have been increasing too. In fact, 2021 was the most profitable year for the bank in its history, bringing in €15.3bn, thanks to strong business momentum across most regions. The company is also seeing loan approval rates go up in cash-rich regions like Europe and the US. The repaying ability of the average citizen in those regions is much higher than in Santander’s developing markets, which is a sign that recurring revenue growth could be high over the coming years. 

Santander shares might be lagging behind some of the other companies on this list when it comes to digital banking services. But it is making good strides and is actively developing a range of digital banking services. In 2021, 54% of its total sales were through its digital channels.

3.  Lloyds Banking Group 

As a mainstay of the British finance sector, Lloyds Banking Group (LSE:LLOY) is the most recognised bank in the UK. Since its operations are highly focused around Britain, Lloyds shares and its performance are seen as a barometer for the larger UK economy.

The cash-rich banker is looking to diversify its assets. Since a large majority of its income is from mortgage lending, the banker decided to enter the real estate market in full force in 2021. A partnership with top UK real estate developer Barratt Developments will see the bank acquire 50,000 plots by 2030, making it a top 10 developer in the region. 

Diversifying assets is crucial for UK banking stocks to avoid the pitfalls of recessions. The only way banks can offset losses from payment defaults is to invest their excess cash effectively. And despite falling housing prices, this move may open up a whole new market for Lloyds to explore over the next decade. Offering prepackaged loans for houses developed by Lloyds could become a unique sales pitch that could draw young buyers.

4.  Barclays

This universal British banker offers banking and investment solutions across the globe. With a strong presence in the US as well as top economies in Europe, Barclays (LSE:BARC) is one of the most recognised names in the world of finance. 

The firm has made between £5bn and £8bn a year since 2018 on credit card payments alone. It also has a thriving business banking division and is a highly digitised business offering cutting-edge mobile banking solutions. Its banking app is one of the most downloaded in the western world with 10m users (as of 2021) and 3bn+ logins.

This FTSE 100 bank share’s poor performance across 2022, given the economic turbulence in the UK, has made its valuation incredibly attractive. It is currently one of the cheapest blue-chip banking stocks listed on the LSE. But investors and the board alike are sure that Barclays, like most top banking shares, will make a strong comeback as things get better.

5.  Natwest Group 

The final banking share on our list is no slouch. Natwest Group (LSE:NWG) is the largest business banker in the country. Supporting over 19m customers in the UK, Natwest aims to provide cutting-edge banking solutions and also has lofty environmental sustainability goals.

In fact, Natwest announced its Green Mortgage product, with £728m of lending allocated to champion green businesses. The bank supports several businesses that are helping other businesses meet their environmental goals as well. Natwest’s digital offerings are popular too. Over 60% of its retail current account holders interact with the bank only through digital mediums. 

On the business side, 2021 was a great year for Natwest. Total lending values grew by £7.8bn, primarily driven by mortgages. While this UK share has struggled like every other financial institution in 2022, over the last 12 months of trading, Natwest shares have risen over 15%. This places it second in terms of returns compared to all other banks on this list (behind HSBC). 

This shows investor confidence when the FTSE 100 index has been struggling for stability. And looking at Natwest’s historic dividend growth and the average yield of 4.5% across 2022, it is clear why investors favour this banking share over others.

Why are UK bank shares falling in 2022?

In 2022, markets worldwide have witnessed huge collapses. It is clear now that the economic impact of the pandemic will be drawn out. And the UK is in a particularly vulnerable state right now due to rising geopolitical tensions in Europe and the ever-changing energy lobby. 

Rising costs have raised inflation throughout the year and are expected to outstrip 11% by the end of 2022. As a result, banking shares have become a hot topic of debate right now as the Bank of England mulls further interest rate hikes. While some big lenders like Lloyds stand to benefit from higher interest payments in the short term, investors are still concerned about the spending power of the average citizen if the UK enters a recession. 

Forcing consumers to save every penny creates a bad business environment, especially for banks. Most banks make money for every transaction and thus stand to make less in a recession. Historically, a period of poor economic growth is marked by banking stocks falling fast. Also, in a recession, payment defaults could increase, which is a liability. 

Will banking shares recover?

The data shows that finance shares are the first ones to recover from a crash because banks tend to invest right, be cash-rich, and use governmental support to recover losses quickly. 

All the banking shares discussed on this list are considered blue-chip finance stocks with huge cash reserves and assets. And even in an economic downturn, banking services will be essential. Even after the crash in 2020, the banking stocks on this list have shown strong signs of recovery and are steadily posting better results every quarter.

If you are looking to add UK banking shares to your portfolio as a growth option or for passive income, these bankers are a great starting point. By understanding how these top banking shares are different, new investors can understand the fundamentals better and know what to expect from an investment in banking shares in the UK. 

Dividend champion

FTSE 100 banking giant HSBC (LSE: HSBA) is one stock on my radar for generating passive income. Despite beating analysts’ profit expectations, the market didn’t warm to its third-quarter results. Yesterday, its share price fell 7%. Year-to-date, the share price has been flat.

In 2022, analysts are predicting a dividend per share (DPS) of 29 cents. At today’s share price, that equates to a yield of 5.8%. However, what really attracts me to HSBC shares, is the prospect of bumper returns in the years ahead.

For 2023, analysts are forecasting a 58% increase in DPS to 46 cents. This is on the back of materially higher expected returns. The company is also reinstating quarterly dividends.

Driving the improved performance of HSBC, is rising interest rates. In the last 18 months, net interest income (NII) has increased 30% to £8.5bn. Unsurprisingly, this has had a positive impact on the net interest margin (NIM).

Targeting £100 a month from HSBC shares

There are two methods I can employ in order to target £100 a month in dividend income from the shares.

Firstly, I could make a lump sum investment. Crunching the numbers, and assuming a forward yield of 9%, I would need to invest £13,300 to reach my target. At a price of around 443p per share, I would therefore need to buy 3,010 shares.

Secondly, and a better proposition for me, would be to build my position in the stock over time. I will make an initial investment of £1,000. Each month thereafter I will buy £100 of its stock. If I reinvest all my dividends too, in approximately seven years I would have reached my target of 3,010 shares.

Of course, these figures are purely illustrative. They assume that both the dividend yield and share price remain constant; a highly unlikely scenario.

Is HSBC’s dividend yield safe?

A key metric I look at when determining dividend sustainability, is dividend cover. This tells me how many times earnings are covered by DPS. In 2023 and 2024, analysts are predicting that earnings per share (EPS) will be 96p and 104p, respectively. Consequently, dividend cover is comfortably above the recommended two times.

However, the banking industry is a notoriously cyclical one and earnings estimates can change very quickly.

The macroeconomic environment has deteriorated during 2022. Rising inflation and stagnant growth have raised the spectre of the return of stagflation.  Little surprise, therefore, that HSBC has significantly increased its expected credit loss (ECL) provisions. Its large exposure to China’s commercial real estate sector is another particular concern.

Despite these risks, I believe that HSBC is well placed to ride out the economic storm and emerge stronger.

Over the last few years, it has been exiting low-growth markets and pivoting toward Asia. A growing, propensity to save, middle class, coupled with low investment product penetration, provides HSBC with incredible growth opportunities. As its share price languishes, I intend to build a position in the stock.

The HSBC share price’s ups and downs

As I write (late on Tuesday afternoon), the HSBC share price stands at 443.2p, down 31.9p (-6.7%) since Monday’s close. To be honest, this share slide surprised me somewhat, because the mega-bank’s latest numbers looked pretty positive to me. For the record, here’s how HSBC shares have performed over six other periods:

Although HSBC shares have held up fairly well over the past year, they have lost over two-fifths of their value over the past five years. Ouch. (All these returns exclude cash dividends, which would increase these returns by a few percentage points each year.)

That said, the HSBC share price is in a bear market of its own, having fallen by more than a fifth (-21.9%) from its 52-week peak of 567.2p. It hit this high on 11 February, less than two weeks before Russia invaded Ukraine and sent global stock markets crashing.

Higher rates mean higher profits

In its latest financials, HSBC unveiled a quarterly profit before tax of $1.7bn, nearly $1bn below the prior-year quarter’s figure of $2.6bn. But after various adjustments, the bank reckons its underlying after-tax profit was a healthy $6.5bn, up $1bn year on year.

One thing that directly boosted the bank’s profitability was higher interest rates. These widen banks’ revenues, earnings, and net interest margins (NIMs). Higher rates are something bank shareholders (but not borrowers) should welcome. Indeed, HSBC’s adjusted quarterly global revenue leapt by 28% to $14.3bn, while its NIM rose from 1.19% to 1.57%.

I like the look of HSBC’s dividends

At the current share price of 443.2p, HSBC shares look undervalued to me. Despite its focus on the tiger economies of the Hong Kong and China, HSBC stock trades on a modest price-to-earnings ratio of 7.4. This translates into an earnings yield of 13.6%, while the bank’s dividend yield is a tidy 4.9% a year. Helpfully, this cash yield is covered 2.8 times by earnings, which suggests to me that it is solid and well-underpinned.

However, HSBC’s hefty exposure to China and its authoritarian government is a big political risk to me. Likewise, with the Chinese property market in crisis, HSBC could lose big-time if homeowners default on their mortgages. But I believe that the bank is big, broad, and strong enough to survive the China’s downturn.

I don’t own HSBC at present, but I’d happily buy the shares at current prices. However, as I already have hefty exposure to UK banks, I feel it would be unwise to add to this sector position. Hence, I won’t be buying this cheap stock for my portfolio just yet — although I might be tempted if HSBC’s price declines continue!

The five-year picture is quite different though. Over that timescale, HSBC shares are down 37%, just ahead of Lloyds with a 40% loss. Barclays has fallen 21%.

It does suggest that different events are likely to treat individual bank shares differently. That’s not surprising, given the varied focus of these three. With its concentration on China and the Far East, HSBC is better insulated from the UK’s domestic problems, and from Europe-wide supply difficulties.

Q3 results

HSBC does still have some worldwide exposure as its third-quarter update shows. The results include a $2.4bn impairment related to its operations in France. And that contributed to profit after tax falling by $1.7bn to $2.6bn.

But on an adjusted basis, HSBC puts its post-tax profit at $6.5bn in the quarter, up $1bn.

There’s a similar story with revenue. The reported figures shows a 3% decline to $11.6bn, but a lot of that is due to the planned disposal of HSBC’s French retail operations. Again, adjusted revenue shows a gain, up 28% to $14.3bn.

Margins

In the quarter, the bank’s net interest margin rose by 38 basis points to 1.57%. So at least someone’s doing well from rising interest rates.

Over the nine months, adjusted revenue rose 11% to $40bn, while adjusted profit after tax is up a modest $0.1bn to $17.2bn.

The big question is whether the HSBC share price makes it a buy now. On fundamental ratios, I think it might.

Dividends

Forecasts suggest a 5% dividend yield for 2022, and puts the stock on a price-to-earnings (P/E) multiple of around eight. I find that dividend yield attractive, but it’s nothing compared to what analysts think the future should bring. They see it rising to a whopping 8% in 2023.

I’m always wary of forecasts, so I wouldn’t expect to see 8% until we get well into next year. But we’re so close to the end of the current year that I reckon the 2022 forecast must be reasonably close now. And HSBC’s full-year outlook supports some optimism.

The bank has lifted its net interest income guidance to $32bn, and reckons it should hit at least $36bn in 2023. Everything else seems to be largely unchanged and steady.

Chinese risk

While HSBC’s Asian focus helps reduce the impact of Western austerity, it does bring risks too. China’s zero-Covid policy appears to be harming the economy.

I think negative sentiment could continue for some time until China gets back to economic normality. I have my doubts that zero-Covid can actually work in the long term, as it just doesn’t seem possible to keep a huge population without immunity isolated from a highly contagious global virus.

On balance though, if I didn’t already have enough financial sector exposure, I’d put HSBC on my ‘to buy’ list.

The FTSE 100 bank’s current dividend yields, though, are what really catch my attention. Predicted payouts for 2022 and 2023 leave it yielding 5.4% and 8.3% respectively.

Here’s why I’d buy HSBC shares if I had cash to spare.

Robust forecasts

First it’s worth considering the probability of the company meeting broker forecasts. Based on dividend cover it seems like current estimates look pretty realistic.

The City thinks HSBC will raise 2021’s dividend of 25 US cents per share to 29 cents this year. It is predicted to grow strongly to 44 cents in 2023, too.

At the same time, earnings are predicted to be 76 cents this year and 94 cents next year. This leaves dividend cover ranging between 2.1 and 2.6 times. A reading of 2 times and above provides a decent margin of safety.

Dividend forecasts are also boosted by the strength of the bank’s balance sheet. Its common equity tier 1 (CET1) ratio stood at a healthy 13.6% as of June.

The company might also execute further asset sales to boost its balance sheet. Earlier in October it announced it was exploring the sale of its Canadian operations. Any deal could raise between $7bn and $10bn for its coffers.

Growth hero

I like the look of HSBC’s dividend forecasts. However, the prospect of bulky payouts in 2022 and 2023 aren’t enough on their own to coax me to buy. I haven’t been tempted to buy Lloyds and Barclays shares, for example, despite their own market-beating dividend yields.

But HSBC’s big yields add an attractive plank to its already-appealing investment case. Those earnings forecasts suggest annual growth of 24% and 23% in 2022 and 2023 respectively.

It’s my opinion that the bank’s focus on Asia will deliver exceptional long-term earnings growth, too.

Looking to Asia

HSBC sources the lion’s share of profits from Asia. And it is aggressively pivoting towards this continent for future growth.

It will spend $6bn over the next five years in areas like wealth management and commercial banking. The aim is to deliver “double-digit growth” by capitalising on low product penetration and soaring wealth levels in emerging markets in the region.

According to reports, HSBC is flirting with moving its headquarters from London to somewhere in Asia. This is symbolic of where the company sees its future. The sale of non-Asian assets like its Canadian operations would give it extra financial clout to invest into the region, too.

I’d buy HSBC shares

This isn’t to say that everything about HSBC is positive. The introduction of fresh Covid-19 lockdowns in China would pose a significant threat to its profitability. So would a continued deterioration in the country’s real estate sector.

However, it’s my belief that the potential rewards of owning the bank outweigh the risks. And given the cheapness of HSBC’s share price today I think it’s a top buy.

HSBC’s share price of around 530p results in a bulky 4.8% yield for 2022, based on current dividend forecasts.

This beats the broader FTSE index average of 3.9% by a decent margin. And things get even better for 2023. The dividend yield then marches to 7.2%.

But do these high dividend yields make HSBC a top income stock to buy? Here, I’ll drill down into its dividend forecast for the next couple of years and explain why I’d buy — or wouldn’t buy — the bank’s shares for my portfolio.

A rocky road

To recap, HSBC froze the annual dividend for several years before the pandemic. Then it cut the payout twice during the coronavirus crisis as earnings toppled.

But the bank’s given its investors lots to celebrate more recently. In 2021, the annual dividend jumped to 25 US cents per share from 15 cents a year earlier. City brokers expect them to continue rebounding too, as profitability keeps improving.

A dividend of 29 cents is expected for this year. And a much better 41-cent reward is estimated for 2023.

Great cover

It’s my opinion that HSBC has a brilliant chance of hitting these forecasts. The first thing to consider is how well predicted dividends are covered by anticipated earnings. And dividend cover here ranges between 2.2 times and 2.6 times for the next two years, above an investor’s desired target of 2 times.

HSBC also has a strong balance sheet to help it make these dividends. The bank had a healthy CET1 capital ratio of 13.6% as of June. Its strong cash position has even allowed it to embark $3bn worth of share buybacks over the past year.

So should I buy HSBC shares?

Buying highly-cyclical shares like HSBC is a risk in the current climate. The rising threat of global recession means that banks face the prospect of sinking revenues and a jump in loan impairments.

However, as someone who invests for the long term, HSBC is a company that excites me. In particular, I like the company’s huge exposure to Asia, a region where personal wealth levels are booming and, as a consequence, so is demand for financial products.

At the end of 2021, Asia accounted for 44% of the value of all of HSBC’s customer accounts. And the bank is investing a whopping $6bn over the next several years to build its position there in areas such as wealth management.

I’m also impressed by the scale of cost-cutting at HSBC to boost long-term earnings (and, by extension, dividends). The company is on course to hit the higher end of its savings target of $5.5bn this year, and to deliver $1bn of extra savings in 2023.

Today, HSBC’s shares trade on a P/E ratio of just 8 times for 2022. In my opinion, this rock-bottom valuation, combined with those large dividend yields, make the bank a top value stock to buy.

Higher interest rates

First, banking giant HSBC (LSE:HSBA) has seen its shares climb 5% in the last three months. At the time of writing, they’re trading at 535p.

The firm has been benefiting from a climate of rising interest rates. With inflation exceeding 10%, central banks have been increasing rates in order to bring it under control. 

Interest rates are currently set at 1.75% in the UK. They generally determine how much banks can charge for borrowing services and how much customers will earn for depositing cash in savings accounts. 

Higher rates are generally good news for banks like HSBC, because they may be able to charge more when providing loans and mortgages. 

However, more expensive borrowing may deter customers from taking on any more debt, as they may also be finding difficulties dealing with other issues, like the energy crisis. 

Despite this, investment bank Berenberg increased its price target for HSBC from 560p to 625p, citing improvements in both revenue and costs during the three months to 30 June.

It’s also in a good state of financial health, with a cash balance of $1.09trn, and total debt of $615.84bn. 

Surging energy costs

Second, mining firm Glencore’s (LSE:GLEN) share price has fallen 15% in the past three months. It currently trades at 472p.

It posted bumper pre-tax profits of $7.3bn in 2021, mainly because of higher commodity prices and increased demand for coal and liquified natural gas (LNG).

Furthermore, for the six months to 30 June, adjusted core earnings amounted to $18.9bn, up 119% year on year. 

The business is also embarking on a $3bn share buyback scheme, together with a special distribution of $1.45bn. Although I would be buying the shares in Glencore for growth, it’s good to know that I could also derive income from my investment.

However, there are threats on the horizon. Cost and wage inflation is starting to eat into balance sheets. This may only get worse before it gets better. Commodity prices, especially in base metals, are also much lower than last year.

Despite this, there’s still heightened demand for coal and LNG, products that many of Glencore’s competitors previously decided to move away from.

Overall, both of these firms present interesting opportunities for growth over the long term. While both face threats, like inflation, they are also in strong financial positions. As such, I’ll be adding these businesses to my portfolio in the near future. 

And the London Stock Exchange (LSE), being one of the oldest and most mature stock markets in the world, has a host of blue-chip shares to choose from. 

In this article, we will look at the largest companies in the UK in terms of market size and go over the fundamentals of investing in blue-chip companies in the country.

What are blue-chip stocks?

Blue-chip stocks are companies with a history of positive performance, investor returns, and a stellar reputation. They usually generate billions in revenue every year and have secure finances dating back decades.

A blue-chip company is typically a market leader in its sector, which gives it pricing power to keep ahead of the competition. Its products are usually well-known and have a loyal consumer base. 

Even better, companies with a long history of growth generally pay an above-average dividend to investors, backed by robust cash reserves. Investor interest is often high in blue-chip shares because they can ride volatile markets and usually rebound fast in the event of a market crash.

To understand how blue-chip stocks are categorised, we need to understand market capitalisation (market cap). Market capitalisation is the total monetary value of all a company’s outstanding shares. It is a commonly used metric that helps investors judge the size, true value, and investor interest of a company. It helps group companies into large-cap, mid-cap, and small-cap categories on trading platforms. 

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Top blue-chip stocks in the UK

Now that we’ve defined what blue-chips shares are, here are some of the best blue-chip stocks listed on the UK stock market by largest market capitalisation.

1.   Shell

After switching its headquarters to the UK in 2022 and simplifying its share structure, Shell (LSE:SHEL) has become the largest listed company in the country. The oil and gas giant has a global presence and operates in most segments within the crude oil industry. 

After incurring a loss of £21.6bn in 2020, this blue-chip stock bounced back strongly in 2021, recording an income of £20.1bn. While this was largely due to the big jump in oil prices in 2021, it also serves as a good indicator of future performance. Shell’s ability to rebound thanks to the demand for oil and robust revenue streams is a big positive for any investment portfolio.

And while the renewable energy lobby is growing stronger, crude oil demand is expected to remain high over the next few decades. Based on current trends, the U.S. Energy Information Administration expects a per barrel price of $178 by 2050. And rising oil prices will increase revenue while improving margins, which is a good indicator of future profits.

Key metrics:

• Market cap: £174.3bn (as of 23 May 2022)
• Average daily volume: 30.7m
• Headquarters (HQ): London, UK

2.   AstraZeneca

This British-Swedish pharma giant, established in 1999, is a leader in oncology, biopharma, and rare disease treatment. The company has a thriving R&D department working on crucial treatment areas for chronic respiratory and gastrointestinal diseases as well. 

AstraZeneca (LSE:AZN) has a global presence, which accelerated as a result of its Covid-19 vaccine, developed alongside Oxford University. The company has recently improved its new drug pipeline, and has some promising treatments in the final stages of development. These should be launched over the next five years.

Its R&D ventures are backed by a healthy cash flow, which has grown significantly over the last decade. And this blue-chip stock operates in an industry that’s in the midst of a huge boom.

In fact, the pharma industry is expected to grow at a compounded annual growth rate (CAGR) of 11% and is projected to exceed $1,500bn by 2028. Oncology care and treatment is one of the fastest-growing areas within the industry and is also one of AstraZeneca’s highest earning segments. This adds to the large-cap stock’s growth potential over the next decade.

Key metrics:

• Market cap: £162.6bn (as of 23 May 2022)
• Average daily volume: 7.37m
• HQ: Cambridge, UK

3.   HSBC Holdings

UK-based finance giant HSBC Holdings (LSE:HSBA) operates in over 60 countries and is the world’s sixth-largest bank in terms of total assets and market capitalisation. After the turbulent economic climate in 2020, HSBC recovered well and saw operations across all regions turn a profit.

The group has steadily improved its presence in Asia and is now a top financial services provider in the region. Asia is witnessing a huge surge in business start-ups that will require funds over the next decade. In fact, HSBC’s board is confident that its Asia-first strategy will be an effective long-term revenue generator given the projected economic growth of the region.

But it also means that this UK blue-chip stock is heavily impacted by the economic conditions in Asia. Although the situation in 2021 was unfavourable, analysts expect this growth stock to benefit from its renewed focus. Multi-billion-dollar development projects and increasing foreign investment in the region are good earning prospects for financial institutions.

Key metrics:

• Market cap: £98.6bn (as of 23 May 2022)
• Average daily volume: 3.72m
• HQ: London, UK

4.   Unilever

With a customer base of over 3.5bn people, spread across 100 countries, Unilever (LSE:ULVR) is undoubtedly a fast-moving consumer goods (FMCG) giant. It has a portfolio of over 400 brands and is the fourth-largest FMCG company in the world in terms of sales.

Its three largest divisions are beauty and personal care, food, and home care products. Thirteen of Unilever’s brands recorded a turnover of over €1bn in 2021. During the same period, the company also recorded an underlying sales growth of 4.5%, which was its fastest year-over-year growth in nine years until that point.

Environmental, social, and governance (ESG) goals are already huge markers of success for a business and are only expected to grow in importance over the long term. Unilever recognises this and has reduced its greenhouse emissions by 64% since 2015 and switched to recyclable or compostable plastic packaging in 53% of its products. 

In addition, 52% of the company’s management roles are held by female employees and it has invested €445m on empowering businesses owned by under-represented groups. Sustained efforts in this area could add a lot of positive momentum to Unilever’s brand image and its performance in the stock market as well.

Key metrics:

• Market cap: £89.86bn (as of 23 May 2022)
• Average daily volume: 7.32m
• Headquarters (HQ): London, UK

5.   Diageo

A major player in the global alcohol beverage space, Diageo (LSE:DGE) owns and operates brands like Johnnie Walker and Guinness. As of 2020, the company’s share of the global alcohol market was 4%. And Diageo’s board expects this to increase to 6% by 2030. 

Analysts estimate the alcohol market to grow at a CAGR of nearly 3% and this would bring its valuation to nearly $2,000bn by 2030. Emerging markets like Asia and Africa are expected to grow much faster over the next decade. And Diageo is already expanding fast in these areas.

This blue-chip company already holds over 20% of the growing Indian malt beverage segment and is growing fast in mainland China thanks to its broad range of premium offerings and regional brands. The company has also been on an acquisition spree in the last half-decade, identifying growth areas and acting fast.

Key metrics:

• Market cap: £82.4bn (as of 23 May 2022)
• Average daily volume: 4.38m
• Headquarters (HQ): London, UK

Are blue-chip stocks right for you? 

It is important to note that high valuations and a history of financial growth do not guarantee future returns. Investing in the best blue-chip companies is usually a good starting point to a strong long-term portfolio but investors should identify market trends and also pick strong growth stocks operating in exciting new areas too.

And it is important to recognise when a blue-chip company is forced to transition to meet market demands. Shell is a good example of this. The hydrocarbon energy market is expected to shrink as renewable energy grows. If Shell does not transition effectively, it could slowly lose its existing revenue streams.

Also, the pharma and FMCG companies on this list are susceptible to competition from discount options. Especially in an environment where inflation is rampant, the company offering the lowest price usually sees a jump in market share. If the value of branded products decreases, generic products and discount retailers could become attractive to the average consumer.

But UK blue-chip stocks are an excellent reference for the economic strength of a country. They help beginner investors understand how the stock market works and help seasoned investors understand the market mood and new areas of interest. 

Even outside of the stocks discussed in this article, there are several excellent FTSE 100 blue-chip shares that are worth exploring.

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Potential safe haven?

Fresnillo (LSE:FRES) has seen its share price rise around 20% in the past six months. At the time of writing, it’s trading at 743p.

In recent results for the six months to 30 June, the Mexico-based silver miner reported that production was up 0.4% year on year. This is an indication that the firm has made its operations more consistent following the pandemic, when lockdowns impacted production.

However, over the same period, profits halved to around $141m. In addition, revenue fell by 14.2% year on year, coming in at $1.26bn.

Indeed, Bank of America reduced its price target from 920p to 810p based on the decline in both profit and revenue. 

It’s worth bearing in mind, though, that these results have been negatively affected by the fall in the underlying price of silver. It’s down 16% in the past year. 

In recent months, demand has been rising again. This is because investors are flocking to precious metals as these are considered safe-haven investments during times of economic turmoil. This may be good news for Fresnillo.

Benefiting from higher interest rates

HSBC (LSE:HSBA) is another company I’m considering adding with my spare cash. In the past three months the shares have risen 14% and currently trade at 547p.

The banking giant recently posted positive results for the three months to 30 June. During that time, it beat both revenue and cost expectations by 2% and 4%, respectively. Additionally, revenue grew by 12% year on year. 

This all comes amid rising interest rates, which means that banks can charge more for borrowing services. While this may be good for companies like HSBC, the cost-of-living crisis and higher energy bills may end up deterring potential customers from taking on more debt. 

However, for the first half of 2022, the business posted a net profit of $9.2bn, up from $8.24bn the previous year. Furthermore, basic earnings per share (EPS) rose from $0.36 to $0.42. These figures suggest that the 2023 dividend could be up to 25% above expectations, according to Deutsche Bank, which increased its price target from 751p to 760p.

Overall, both of these companies may have the capabilities to deliver growth over the long term. While there are naturally some challenges ahead, I view these as short-term in nature. To that end, I’ll use my spare £1,000 to buy shares in both Fresnillo and HSBC and hold them for a long period of time.